Last week, the Antiplanner observed that the New York City subway system has a $40 billion maintenance backlog, a $40 billion debt, and a $20 billion shortfall in pension and health care funds. On top of this, CBS News reports that the Metro North and Long Island Railroad commuter-rail systems have a $20 billion maintenance backlog. As I read MTA’s budgets, it is paying off its debt at the rate of about $2.8 billion a year ($1.5 blllion of which is interest).
If the debt service is funded, MTA still needs another $80 billion as soon as possible; call it $4 billion a year. As noted in the CBS News story above, New York politicians are diligently looking for the funds using the time-honored principle of taxing the powerless. The problem with that is that the powerless usually have little money to tax.
One potential source of revenue is auto drivers who (for commuting at least) are a minority in New York City. Although politicians say they want to impose “congestion pricing,” the cordon fee they want to charge will do little to relieve congestion. Instead, it will simply be another tax on top of the bridge tolls now charged to get into Manhattan, most of which already go for transit system operations.
Other potential targets being considered include increased payroll taxes, an increased real estate transfer tax, ending the sales tax exemption on clothing, raising gas taxes, a cannabis tax, and taxes on casinos and sports betting. All but one of these have something in common: the potential taxpayers have no direct connection to the transit system.
As an alternative to taxing the powerless, the Antiplanner proposes that new taxes follow the principle that those who get the benefits should be the ones who pay the costs. Who really benefits from New York City transit? Transit users obviously benefit, but in New York City property owners arguably benefit even more.
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Currently, MTA fare revenues (including revenues from Metro North and Long Island Railroad commuter trains) are about $6.0 billion a year. New York City currently collects $24 billion a year in property taxes, plus close to $2 billion more in real estate transfer taxes. Taxes in areas served by Metro North and the Long Island Railroad in New York state but outside of New York City are several billion more. Increasing transit fares and property taxes by 12 percent should be sufficient to close MTA’s $4 billion gap.
Of course, fare increases might reduce ridership; to minimize reductions, MTA could combine the fare increase on most riders with fare discounts for low-income riders. If fare increases applied only to transit riders who earn more than the city’s median income of about $40,000 a year, then one-way fare increases averaging 30 cents for subways and buses and $1.80 for commuter trains would be sufficient to raise close to $700 million a year.
The other $3.3 billion can come from property taxes, but they should not be spread equally across the region. Manhattan, which has about 40 percent of the city’s real estate value, disproportionately benefits from the transit system, especially the southern end of the island where most of the jobs are located. Midtown and downtown property owners should pay half of the tax increase.
A majority of the remainder should be paid by landowners in the rest of the region whose properties are located within a quarter mile of a subway station — which means the rest of Manhattan, most of the Bronx, and Brooklyn, but only part of Queens and Staten Island (which has its own heavy-rail line) — and a half mile from a commuter-rail station — which means much of Long Island and parts of Rockland, Orange, and Westchester counties. People whose properties are served only by buses should pay the smallest increase in taxes.
MTA is a state agency, not a city agency, so the state can impose these taxes. Metro North also goes into New Jersey and Connecticut, but it will have to deal with those states to pay for rehabilitating those lines. But regardless of jurisdiction, the principle that costs are paid by the beneficiaries should prevail.
Two million jobs or 8 million people. The fact is that subsidized transit encourages density beyond the physical normality associated with most cities. New York is dense because it’s an island with little space to grow except up… Density is a pet subject of environmentalists, who argue that densely populated cities are the solution to lower the energy requirements for transportation. On the other hand it requires significant infrastructure and resources to maintain that way. Most cities reach a peak density and either expand outward or decline at some point. New York did not, it became a economic power house, but created a two tiered society where infrastructure became geared and scaled to super city which the city inevitably could no longer afford.
Whenever infrastructure especially transportation infrastructure is financed thru a myriad of various revenue streams there’s the invitation for graft, waste, fraud and plain Good ol’ fashioned fiscal incompetence. Also when project finances are derived from a multitude of financial sources it’s risky if one source becomes your majority; you run the risk of a specific source depleting or funding shortages regardless; even worse if it’s no longer valid or substantial. Congestion pricing is a unwise short gap solution to paying off a debt, namely because what happens if you actually succeed in reducing congestion? The purpose of congestion fees isn’t to solve congestion, it’s purpose is political or environmentally driven; either to obtain an additional source of revenue, or challenge pollution by taking cars off the road; we call those “Externality payments”. Usually this form of revenue is often sprung and idealized politically as a last ditch effort. Sold to the public with the guarantee “Don’t worry you wont pay it, the other guy will”. The oldest political strategy in the book is saying Group A should pay for group B and vice versa. Usually when the city government is facing some sort of financial crisis externality fees crop up when Problem [insert] creeps up. It’s neither good nor bad, simply a inevitability when the city’s piggy bank has already been smashed open. New York City is the result of externality fees. Mostly to pay for the crippled infrastructure the city said they needed and then the money is pilfered and finds it’s way into some other expenditure.
Another problem is since Transit is perceived as an essential good, thus investigation into it’s…management and operations is seldom scrutinized by any concerned eyes. Auditing, while essential is a difficult time consuming process, when deadlines mount, oversight shrinks. The Hotel/Motel tax is a good example, cities always use it for politically dubious projects. Much of the support for Yankee Stadium came from the city and state, but federal tax exemption lowered costs by nearly $400 million. And, in a sleight-of-hand accounting move, the deal avoided the public scrutiny required for exemption. A community might not want to pay for a bridge or airport open to more than just the locals. As an incentive, the federal government gives up tax revenue from interest paid on financing bonds, and city and states save by paying lower tax-exempt interest rates. When the project is used by a private business such as a sports team, tax exemption is permitted if the community agrees to repay the bonds with general tax revenues. The rule was intended to ensure that local citizens supported the project as the best use of collective funds. Some municipalities have raised money with new taxes falling mostly on the poor (such as lotteries) or on tourists (such as taxes on hotels and rental cars). Local taxpayers may not feel the pinch, even so they give up potential sources of revenue that could pay for schools or police protection.
As other sports teams have done, the Yankees threatened to move to a different city unless they received public subsidies, including the federal exemption. Given severe budget shortfalls, though, local politicians feared that using general tax revenues would trigger opposition. In the end the Yankee’s got hundreds of millions of free money to build a stadium, they tore down a historic landmark and suckered the taxpayer all in one…if only their gameplay was as strategic.
Unfortunately the way we govern in the United States; I’m not preachy, but the fact is the current political regime regardless of party has lost all interest to the general well being of it’s citizenry. Their concerns are Getting paid, legislating over your lives and getting re-elected.
CBS’ 60 Minutes did a story on the subway woes too. While it mentions finances from ideas above and the current political squabbling. But it fails illustrate a clear point other than tell us the subway is falling apart. They haven’t reached true crisis mode yet. Can we avoid the next disaster? That requires discipline and attentiveness, something politicians are not known for. So keep your eyes peeled for the next derailment or subway disaster cause it’s coming soon. Not until a catastrophic collapse or severe accident that plagues the system for weeks. It’ll be brutal, it’ll be painful but it will at least get the message across and in the wake of the disaster the politicians in charge will go on PR mode to cover their asses, when they’re not blaming one another for the disaster.
It takes a Crisis for leaders to understand and work towards solutions. Look at history’s examples. The Titanic, Pearl Harbor, the NYC subway in the 80’s, Bridges across the nation, such as the Interstate 35 collapse. Sadly the way we govern in the US we have to wait for a disaster or something to become a crisis that enough people care about for progress to commence. It’s the fate of every system bogged down by bureaucracy incompetence, or outright apathy. Healthcare, transit, the grid, the internet.